Cloud working group is model for banks to collaborate on other new technologies, says expert

Throughout the past year, Pinsent Masons, the law firm behind Out-Law.com, has worked with the British Bankers' Association (BBA) to host a series of bank industry working group sessions in an effort to identify the central barriers banks face in entering into cloud outsourcing arrangements, as well as potential solutions to those issues.

The initiative drew widespread interest and input from across the UK banking sector.

Members of legal, compliance and risk, commercial, technology and public policy teams from banks such as HSBC, Barclays, Lloyds, RBS, Citi, JP Morgan, Investec and others shared their views on the various challenges they have encountered when exploring cloud outsourcing arrangements.

Opinions were gathered, issues debated, and the final result was that seven key hurdles to the adoption of cloud-based services by banks were identified.

The seven hurdles address banks' uncertainty over interpreting regulation, issues of supply chain management, how to address audit rights and account for risk, the location and management of data in a cloud context, and matters to consider around exiting cloud contracts.

Today the BBA and Pinsent Masons are publishing a special report highlighting the hurdles that have been identified in more detail, and the potential steps that could be taken to overcome them.

Matthew Herbert, the BBA's director of strategy and digital, said: "Agility is probably the key motivating driver for a lot of innovation teams wanting to procure and use cloud computing products and services. It enables firms to not only adjust to the demand that is required on their apps and on their digital products and services but it also give them an environment in which they can, in a more agile way, build new products and services."

"The report shines a spotlight on the importance of cloud computing in the industry to support digital transformation and innovation projects. It also helps to clarify what some of the real frictions are as opposed to some of the misconceptions that are prevalent across the industry and signposts a work-plan for the industry to engage collaboratively to remove some of these frictions and reduce the costs and delays and missed opportunities associated with them", he said.

Herbert said there is a "real appetite" to address the issues highlighted in the report with further collaborative work across the industry. That work could lead to the development of industry standards and areas of best practice, and there is a desire and an opportunity for the regulators and cloud providers to be involved in this work too, he said.

Being involved in the work of the BBA's cloud working group, it was very interesting to see the strategic importance a technology issue has for different parts of a bank's business and how those different teams approach it.

The work showed that some of the practicalities involved in implementing cloud solutions are not accounted for in existing financial regulatory frameworks or guidance, and that there needs to be an  interplay between the commercial side of the business, technical staff and legal and compliance teams for cloud solutions to be more readily adopted within a bank.

The work undertaken by the working group offers a blueprint for how the banking industry can work together to address some of the challenges that may arise from growth in popularity in, and increased demand for, other new technologies.

The application of artificial intelligence and distributed ledger technologies to financial services, for example, offers new ways to serve consumers more innovatively and efficiently, but may raise new questions of regulatory compliance, from matters of consumer protection to issues of service integrity, financial crime risk and data security.

A collaborative effort from industry to pinpoint the issues that have been encountered and can be foreseen with new technologies, as well as any regulatory barriers to their adoption, can help inform technology vendors of the challenges banks face and encourage a pragmatic approach to regulation.

Herbert said: "We are in a new age of banking where technology forms a central role in enabling innovation and also the day-to-day operations of the bank. These issues are becoming more relevant across different functions within a bank and the only way to address it properly is to convene a number of subject-matter experts from across the industry and a bank in order to address the issues of common concern."

Luke Scanlon is an expert in financial services and technology at Pinsent Masons, the law firm behind Out-Law.com.